Think Your Vacant Land is Overassessed? Recent Case Law Guides Taxpayers on Requirements of 50% Property Tax Reduction for “Undeveloped Land”

September 10, 2014

A property’s classification (e.g., as residential, commercial, agricultural, etc.) for property tax purposes can greatly affect how the property is assessed. This is particularly true for vacant land. Real estate that is classified for property tax purposes as “agricultural forest land” or “undeveloped land” is assessed at 50% of its full value. Two recent appellate cases demonstrate the challenges faced by taxpayers who want their property to be classified as “undeveloped land,” and by extension, receive the benefit of a 50% discount on their property tax bill. In both cases, the taxpayers challenged their assessments on the basis that their respective properties should have been classified as “undeveloped.” In both cases, the courts sided against the taxpayer.

An assessor’s classification of real estate for property tax purposes is presumed to be correct unless the taxpayer can prove otherwise. The case Sausen v. Town of Black Creek Bd. of Review was decided by the Supreme Court on February 19, 2014. The rule announced by the Court in that case was that a taxpayer who challenges an assessor’s classification of real estate for property tax purposes has the burden of proving that the assessor’s classification is erroneous. Said another way, an assessor’s classification of property is presumed to be correct unless and until the taxpayer can prove with sufficient evidence that the assessor’s classification is incorrect.

The facts of Sausen were that the taxpayer owned a 10-acre parcel in the Town of Black Creek, Outagamie County. The land was used mainly for hunting but was classified for property tax purposes as “productive forest land.” In 2009, the Town more than doubled the assessed value of the land from $11,000 to $27,500. The taxpayer challenged the assessment before the Town Board of Review by arguing that the assessed value should be $13,750 (that is, 50% of full value) because the assessor should have classified the property as “undeveloped land.” To make his case, the taxpayer relied solely on a DNR map describing the property as “forested wetland” and a USGS aerial photo of the property. The Board of Review refused to change the property’s classification on the basis that the taxpayer failed to produce sufficient evidence to overcome the presumption that the assessor’s initial classification of the property was correct. The taxpayer sought certiorari review in circuit court and argued that it was wrong for the Board of Review to require him to overcome the presumption that the assessor’s classification was correct. The circuit court sided with the Board of Review. The Court of Appeals affirmed.

On appeal to the Supreme Court, the taxpayer argued that an assessor’s classification of property for property tax purposes should not be given any special weight. The Supreme Court disagreed. In matters of valuation (as opposed to classification), the assessor’s opinion carries special weight—the assessor’s opinion of a property’s value is presumed to be correct. It is the taxpayer’s job to overcome that presumption. The same holds true in matters of classification. The Court held that the evidence offered by the taxpayer was not enough to prove that the assessor’s classification of the property was erroneous. Consequently, the Board of Review was justified in refusing to re-classify the taxpayer’s property from “productive forest land” to “undeveloped land.”

Notably, the justices went out of their way to explain what type of evidence (if offered at the Board of Review hearing) might have changed the outcome. For example, in the majority opinion, Chief Justice Abrahamson explained that the taxpayer failed to provide evidence that the property was incapable of producing commercial forest products or that the property consisted of constantly wet soil (an indicator of “undeveloped land”). In his concurring opinion, Justice Prosser said he would have liked to know (1) the history of changes (if any) in the property’s classification; (2) whether the taxpayer had planted or harvested trees from the property, and if not, then why not?; (3) how much of the property was designated “wetlands” and by whom?; and (4) whether there were environmental or other regulations that restricted the taxpayer’s ability to harvest trees from the property due to its “forested wetlands” designation. Finally, in her concurring opinion, Justice Roggensack mentioned that the taxpayer’s failure to produce expert testimony from an appraiser was consequential to the taxpayer’s ability to challenge the assessor’s opinions. However, since the taxpayer had sought certiorari review from the Board of Review’s decision instead of de novo review under the excessive assessment procedure created by §74.37, Wis. Stat., the taxpayer (and his attorney) were stuck with the evidence presented by the taxpayer at the Board of Review hearing.

The “nonproductive land” subcategory of “undeveloped land” includes only land that is incapable of productive use and which is not likely to be used for any other classified purpose. The next case, West Capitol, Inc. v. Village of Sister Bay, was decided by the Court of Appeals on April 15, 2014. The taxpayer’s challenge in West Capitol, Inc. was triggered by a reassessment of the subject property in 2008 that nearly doubled its assessed value from $2,440,000 to $4,575,000. The subject property was vacant land consisting of 16.86 acres with 610 feet of Green Bay shoreline. The assessor classified the property as “residential” for the years in question. According to the taxpayer, the property should have been valued at $2,440,000 in 2008 and assessed at half that amount ($1,220,000) because it was “undeveloped land.” For purposes of appeal, the taxpayer and the Village agreed that the subject real estate (1) was heavily wooded and “preserved in its natural state;” (2) did not contain any building or dwellings; (3) was not used for agricultural or manufacturing purposes; (4) was not primarily devoted to buying and reselling goods for a profit; (5) was not used for the production of commercial forest products; and (6) was zoned “B-1 general business district.” In addition, the property was not used as collateral. Based on these undisputed facts, the taxpayer argued that the subject real estate met the statutory definition of “undeveloped land” and should have been assessed at half of its full value.

The Court of Appeals disagreed. The Court explained that the term “undeveloped land” is defined by statute to mean (1) bog; (2) marsh; (3) lowland brush; (4) uncultivated land zoned as shoreland under s. 59.692 and shown as a wetland on a final map under s. 23.32; or (5) other nonproductive lands that do not otherwise meet the description for any other classification. The taxpayer argued that its land fell under the “other nonproductive lands” subcategory. So, according to the Court, the taxpayer had to show (1) the land was nonproductive land and (2) the land did not meet the description of any other classification. The taxpayer failed to satisfy either prong.

For the first prong, the Court of Appeals supplied a definition for the term “nonproductive land” to mean land that is not productive or that is incapable of productive use. According to the Court, land that is capable of a productive use (even though it is not actually producing anything) is not nonproductive. The Court determined that, as of January 1 of the assessment year, the taxpayer’s property was capable of productive use. The taxpayer failed to satisfy the first prong. For the second prong, the Court explained that the “most likely use” of a property is the conclusive factor in deciding whether the property fits in the “other nonproductive lands” subcategory. Even though the taxpayer’s property was zoned “B-1 general business district,” the Court agreed with the Village that the most likely use of the property was residential. The Court rejected the taxpayer’s argument that the property was not actually used for residential purposes and that current zoning appeared to prohibit residential uses. Instead, the Court found that it was enough for the Village to show that rezoning to a residential district would likely be allowed.

Bottom line. Okay, so maybe “undeveloped land” is not the best choice of words. The term is not (as common usage would suggest) synonymous with vacant land, and that seems to have created confusion for taxpayers. The takeaway from West Capitol, Inc. is simply that land must be truly useless in order to be considered “undeveloped.” The takeaway from Sausen is that, in order to successfully challenge a property’s classification, a taxpayer must be prepared to overcome the presumption that the assessor’s classification of the property is correct. As it relates to “undeveloped land,” taxpayers must be prepared to present sufficient persuasive evidence (including, perhaps, expert testimony from a qualified appraiser) that the subject property is genuinely useless.

If you have any questions about how the information in this article may affect you or your business, please contact your Stroud attorney. 

DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice. This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship. You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.